(1) a United States person sells or exchanges stock in a foreign corporation, and
(2) such person owns, within the meaning of , or is considered as owning by applying the rules of ownership of , 10 percent or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation at any time during the 5-year period ending on the date of the sale or exchange when such foreign corporation was a controlled foreign corporation (as defined in section 957),
December 31, 1962
(1) a pro rata share of the excess of—
a pro rata share of the excess of—
(A) the taxes that would have been paid by the foreign corporation with respect to its income had it been taxed under this chapter as a domestic corporation (but without allowance for deduction of, or credit for, taxes described in subparagraph (B)), for the period or periods the stock sold or exchanged was held by the United States person in taxable years beginning after
(B) the income, war profits, or excess profits taxes paid by the foreign corporation with respect to such income; and
(2) an amount equal to the tax that would result by including in gross income, as gain from the sale or exchange of a capital asset held for more than 1 year, an amount equal to the excess of (A) the amount included in gross income as a dividend under subsection (a), over (B) the amount determined under paragraph (1).
(1) In general
Except as provided in , for purposes of this section, the earnings and profits of any foreign corporation for any taxable year shall be determined according to rules substantially similar to those applicable to domestic corporations, under regulations prescribed by the Secretary.
(2) Earnings and profits of subsidiaries of foreign corporations
If—
(A) subsection (a) or (f) applies to a sale, exchange, or distribution by a United States person of stock of a foreign corporation and, by reason of the ownership of the stock sold or exchanged, such person owned within the meaning of stock of any other foreign corporation; and
(B) such person owned, within the meaning of , or was considered as owning by applying the rules of ownership of , 10 percent or more of the total combined voting power of all classes of stock entitled to vote of such other foreign corporation at any time during the 5-year period ending on the date of the sale or exchange when such other foreign corporation was a controlled foreign corporation (as defined in section 957),
(C) are attributable (under regulations prescribed by the Secretary) to the stock of such other foreign corporation which such person owned within the meaning of (by reason of his ownership within the meaning of of the stock sold or exchanged) on the date of such sale or exchange (or on the date of any sale or exchange of the stock of such other foreign corporation occurring during the 5-year period ending on the date of the sale or exchange of the stock of such foreign corporation, to the extent not otherwise taken into account under this section but not in excess of the fair market value of the stock of such other foreign corporation sold or exchanged over the basis of such stock (for determining gain) in the hands of the transferor); and
(D) were accumulated in taxable years of such other corporation beginning after
were accumulated in taxable years of such other corporation beginning after
(i) such other corporation was a controlled foreign corporation, and
(ii) such person owned within the meaning of the stock of such other foreign corporation.
then, for purposes of this section, the earnings and profits of the foreign corporation the stock of which is sold or exchanged which are attributable to the stock sold or exchanged shall be deemed to include the earnings and profits of such other foreign corporation which—
(1) Amounts included in gross income under section 951
Earnings and profits of the foreign corporation attributable to any amount previously included in the gross income of such person under section 951, with respect to the stock sold or exchanged, but only to the extent the inclusion of such amount did not result in an exclusion of an amount from gross income under section 959.
[(2) Repealed.
(3) Less developed country corporations under prior law
Earnings and profits of a foreign corporation which were accumulated during any taxable year beginning before
(4) United States income
Any item includible in gross income of the foreign corporation under this chapter—
(A) for any taxable year beginning before
(B) for any taxable year beginning after
This paragraph shall not apply with respect to any item which is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States.
(5) Foreign trade income
Earnings and profits of the foreign corporation attributable to foreign trade income of a FSC (as defined in section 922) other than foreign trade income which—
(A) is non-exempt income (within the meaning of ), or
(B) would not (but for ) be treated as exempt foreign trade income.
For purposes of the preceding sentence, the terms “foreign trade income” and “exempt foreign trade income” have the respective meanings given such terms by section 923. Any reference in this paragraph to section 922, 923, or 927 shall be treated as a reference to such section as in effect before its repeal by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000.
(6) Amounts included in gross income under section 1293
Earnings and profits of the foreign corporation attributable to any amount previously included in the gross income of such person under section 1293 with respect to the stock sold or exchanged, but only to the extent the inclusion of such amount did not result in an exclusion of an amount under .
(1) a United States person sells or exchanges stock of a domestic corporation, and
(2) such domestic corporation was formed or availed of principally for the holding, directly or indirectly, of stock of one or more foreign corporations,
(1) In general
If—
(A) a domestic corporation satisfies the stock ownership requirements of subsection (a)(2) with respect to a foreign corporation, and
(B) such domestic corporation distributes stock of such foreign corporation in a distribution to which , 337, 355(c)(1), or 361(c)(1) applies,
then, notwithstanding any other provision of this subtitle, an amount equal to the excess of the fair market value of such stock over its adjusted basis in the hands of the domestic corporation shall be included in the gross income of the domestic corporation as a dividend to the extent of the earnings and profits of the foreign corporation attributable (under regulations prescribed by the Secretary) to such stock which were accumulated in taxable years of such foreign corporation beginning after
(2) Exception for certain distributions
In the case of any distribution of stock of a foreign corporation, paragraph (1) shall not apply if such distribution is to a domestic corporation—
(A) which is treated under this section as holding such stock for the period for which the stock was held by the distributing corporation, and
(B) which, immediately after the distribution, satisfies the stock ownership requirements of subsection (a)(2) with respect to such foreign corporation.
(3) Application to cases described in subsection (e)
To the extent that earnings and profits are taken into account under this subsection, they shall be excluded and not taken into account for purposes of subsection (e).
(1) distributions to which section 303 (relating to distributions in redemption of stock to pay death taxes) applies; or
(2) any amount to the extent that such amount is, under any other provision of this title, treated as—
any amount to the extent that such amount is, under any other provision of this title, treated as—
(A) a dividend (other than an amount treated as a dividend under subsection (f)),
(B) ordinary income, or
(C) gain from the sale of an asset held for not more than 1 year.
Unless the taxpayer establishes the amount of the earnings and profits of the foreign corporation to be taken into account under subsection (a) or (f), all gain from the sale or exchange shall be considered a dividend under subsection (a) or (f), and unless the taxpayer establishes the amount of foreign taxes to be taken into account under subsection (b), the limitation of such subsection shall not apply.
(1) In general
If any shareholder of a 10-percent corporate shareholder of a foreign corporation exchanges stock of the 10-percent corporate shareholder for stock of the foreign corporation, such 10-percent corporate shareholder shall recognize gain in the same manner as if the stock of the foreign corporation received in such exchange had been—
(A) issued to the 10-percent corporate shareholder, and
(B) then distributed by the 10-percent corporate shareholder to such shareholder in redemption or liquidation (whichever is appropriate).
The amount of gain recognized by such 10-percent corporate shareholder under the preceding sentence shall not exceed the amount treated as a dividend under this section.
(2) 10-percent corporate shareholder defined
For purposes of this subsection, the term “10-percent corporate shareholder” means any domestic corporation which, as of the day before the exchange referred to in paragraph (1), satisfies the stock ownership requirements of subsection (a)(2) with respect to the foreign corporation.
In the case of the sale or exchange by a domestic corporation of stock in a foreign corporation held for 1 year or more, any amount received by the domestic corporation which is treated as a dividend by reason of this section shall be treated as a dividend for purposes of applying section 245A.
For provision excluding amounts previously taxed under this section from gross income when subsequently distributed, see .